2008 Annual Report - Kenford Group Holdings Limited

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Notes to the Financial Statements For the year ended 31 March 2008 32. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year and are also discussed below. Depreciation and impairment of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account their estimated residual values. The Group reviews the estimated useful lives of the assets regularly. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are signifi cant changes from previous estimates. The impairment loss for property, plant and equipment is recognised as the amount by which the carrying amount exceeds its recoverable amount in accordance with the accounting policy stated in notes 4(d) and 4 (s). The recoverable amounts have been determined based on fair value less costs to sell, which are based on the best available information obtained at each balance sheet date, from the disposal of the asset in an arm’s length transactions between independent and willing parties, after considering the cost of disposal. Impairment loss on trade receivables The policy for impairment of trade receivables of the Group is based on the evaluation of collectability and aging analysis of the trade receivables and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these trade receivables, including the current creditworthiness and the past collection history of each customer. If the fi nancial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment may be required. Net realisable value of inventories Net realisable value of inventories represented the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. The management estimates the net realisable value for such inventories based primarily on the latest invoice prices, current market conditions and the historical experience of manufacturing and selling products of a similar nature. The management of the Group reviews the assessment at each balance sheet date. Impairment on goodwill The management of the Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash fl ows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 March 2008 was HK$1,403,000 (2007: HK$1,403,000). More details are given in note 18. Annual Report 2008 79
Notes to the Financial Statements For the year ended 31 March 2008 33. RETIREMENT BENEFITS The Group operates a defined contribution, Mandatory Provident Fund retirement benefi ts scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The Group is required to contribute 5% of the monthly salaries (up to a maximum contribution of HK$1,000) for all Hong Kong based employees to the fund. The employees of DG Kario, a wholly owned subsidiary acquired by the Group on 23 March 2005 are required to participate in a defi ned contribution retirement benefi t plan organised by the local municipal government in the PRC under which the subsidiary and the employees are required to make monthly contributions to the plan calculated at 23% of the employees’ average monthly salary in the preceding year. The Group’s contributions for the year amounted to approximately HK$2,543,000 (2007: HK$496,000). Under the Hong Kong Employment Ordinance, the Group is obliged to make lump sum payments on cessation of employment in certain circumstances to certain employees who have completed at least five years of service with the Group. The amount payable is dependent on the employees’ fi nal salary and years of service, and is reduced by entitlements accrued under the Group’s retirement plans that are attributable to contributions made by the Group. The Group does not set aside any assets to fund any remaining obligations. 34. CONTINGENT LIABILITIES (i) A High Court action was commenced by WIK Far East Limited (“WIK”) against a subsidiary of the Group on 27 April 2004 in respect of alleged infringements of a patent in respect of retractable brushes. The Directors have confirmed that no settlement had been reached by the parties and no judgement on the quantum of damages had been made against the Group in respect of the legal action. The Group has sought legal advice from its legal counsel on the merits of the claim. According to the legal counsel, given that the trial has not yet commenced and the parties are still at a premature stage of the litigation, and in the absence of any indication as to how WIK would like to proceed with its claim, it would not be possible to quantify reliably the likely potential damages and cost to be incurred by the Group in the event that the subsidiary of the Group fails in its defence to the claim of patent infringement in the litigation. Assuming that WIK will claim for damages for loss of profi ts or for accounts of profi ts, the Directors are of the view that the quantum of the ultimate cost and damages (if any) to be incurred by the Group will not have a material adverse impact on the Group’s fi nancial position. In the event that a liability has arisen from the Litigation, the controlling shareholders have jointly and severally agreed and undertaken to indemnify the Group from and against any of such liability. (ii) The Company has executed guarantees amounting to approximately HK$242,000,000 (2007: HK$211,000,000) with respect to banking facilities made available to its subsidiaries. As at 31 March 2008, the borrowings outstanding against the facilities amounted to approximately HK$128,000,000 (2007: HK$130,288,000). In the opinion of the directors, no material liabilities will arise from the above corporate guarantee which arose in the ordinary course of the business and the fair value of the guarantee granted by the Company is immaterial. 80 KENFORD GROUP HOLDINGS LIMITED
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Contents Page 1. Corporate Informat
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Chairman’s Statement On behalf of
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Management Discussion and Analysis
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Management Discussion and Analysis
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Report of the Directors PROPERTY, P
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Report of the Directors DIRECTORS
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Report of the Directors SUBSTANTIAL
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Report of the Directors SHARE OPTIO
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Report of the Directors SHARE OPTIO
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Report of the Directors TAXATION OF
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Directors' and Senior Management's
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Directors' and Senior Management's
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Corporate Governance Report BOARD O
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Corporate Governance Report CHAIRMA
Page 30 and 31: Corporate Governance Report NOMINAT
Page 32 and 33: Corporate Governance Report INVESTO
Page 34 and 35: Corporate Structure CORPORATE STRUC
Page 36 and 37: Independent Auditor’s Report OPIN
Page 38 and 39: Consolidated Balance Sheet As at 31
Page 40 and 41: Consolidated Statement of Changes i
Page 42 and 43: Notes to the Financial Statements F
Page 84 and 85: Five Years Financial Summary CONSOL
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2008 Annual Report - Kenford Group Holdings Limited

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